BRIAN Lenihan's decision to delay the latest €10bn recapitalisation means that sorting out the banks will be one of the first items on the new government's agenda.
However, despite many radical proposals, none of the parties which hope to replace Fianna Fail in government has acknowledged the presence of the elephant in the room -- the more than €150bn which the Irish-owned banks now owe the ECB and our own Central Bank.
The centrepiece of Fine Gael's bank strategy is to cap the Irish taxpayers' exposure. It proposes to achieve this goal by renegotiating the terms of the EU/IMF bailout. Fine Gael plans to force the remaining bank bondholders, both senior and junior, to take a "haircut" on their investment. The party hopes to sell off AIB and EBS to foreign buyers, close Anglo and Irish Nationwide but retain Bank of Ireland in domestic ownership.
Given the ECB's fierce opposition to the notion of writedowns on senior bonds, Fine Gael hopes to sugar the pill by getting the bondholders to agree to swap their bonds for equity in the Irish-owned banks. What if our European "partners" refuse?
While the Fine Gael banking policy document is couched in that party's usual trademark gentlemanly tone, there is no disguising the implicit threat. If Europe won't agree to a 'haircut' or debt-for-equity swap, then Fine Gael warns that it would "be left with little choice but to unilaterally restructure the private debts of those Irish banks in greatest need of recapitalisation".
Europe can't claim that it wasn't warned!
Despite Labour leader Eamon Gilmore's noisy rhetoric about "Labour's way or Frankfurt's way", its banking policy isn't a million miles away from that of Fine Gael. Labour too wants to force bank bondholders to accept a haircut.
The main difference between the two parties is Labour's proposal for a strategic investment bank which would advance loans of between €2m and €10m in "high potential". Stripped of the election manifesto verbiage, the proposed strategic investment bank looks very much like a latter-day version of the Industrial Credit Corporation, the state-owned industrial development bank that was sold to Bank of Scotland (Ireland), remember them, in 2001.
On the subject of Nama, Fine Gael and Labour are virtually ad idem.
Fine Gael wants to stop the transfer of the banks' remaining bad property-based loans -- those between €5m and €20m -- to Nama. It also wants to outsource at least 70pc of Nama's activities to three or four independent property management companies and to halt the outgoing government's plans to flog off some of the loan books and other assets of the Irish banks "at fire sale prices" and instead warehouse them in a special purpose vehicle until values recover.
Labour is also opposed to transferring smaller loans to Nama and, like Fine Gael, wants to renegotiate the terms of the EU/IMF bailout, particularly the 5.8pc interest rate.
Unfortunately, what Fine Gael and Labour are proposing to do to address the Irish fiscal and banking crisis doesn't address the core issue. This is, of course, that with €70bn of senior bank bonds already having been repaid, even imposing a severe haircut on the remaining €20bn of senior bonds would barely scratch the surface of the Irish debt mountain, which by some estimates now exceeds €300bn.
This includes not just the near €100bn "official" national debt, but the more than €150bn which the ECB and the Irish Central Bank have lent to the Irish banks and the €40bn of NAMA bonds which those same banks received for their bad loans.
With most of the senior bondholders having been repaid, "burn the bondholders" is now merely a soundbite rather than a policy. Any credible attempt to solve the Irish banking crisis must involve targeting the ECB, which has lent over €130bn to Irish-based banks, of which almost €100bn has gone to the Irish-owned banks. Based on their pre-election documents, neither Fine Gael nor Labour are yet prepared to contemplate such an appalling prospect.
But what about Sinn Fein? Surely Ireland's self-styled revolutionary party would have no qualms about standing up to Johnny Foreigner and forcing the ECB to take a "haircut"? If the Shinners do have any plans to "persuade" the ECB to share the pain then they are keeping them very much to themselves. Instead, the Sinn Fein manifesto contains the standard-issue boilerplate on "burning" the bondholders and a "responsible" wind-down of Nama.
In fact, whatever their other differences, there is very little between the three parties who weren't in the outgoing government on the banking crisis. Unfortunately, this reluctance to think the unthinkable or say the unsayable means that the policies they publish before the election are likely to prove a poor guide to what they will do in power.